Information Cascades and Social Learning

77 Pages Posted: 7 Jun 2021 Last revised: 6 Dec 2021

See all articles by Sushil Bikhchandani

Sushil Bikhchandani

University of California, Los Angeles - Anderson School of Management

David A. Hirshleifer

Marshall School of Business, USC; National Bureau of Economic Research (NBER)

Omer Tamuz

California Institute of Technology - Division of the Humanities and Social Sciences

Ivo Welch

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2021

Abstract

An information cascade is a situation in which an agent who observes others chooses the same action irrespective of the value of the agent’s private information signal. Theoretical models have found that cascades result in poor information aggregation, inaccurate decisions, and fragility of mass behaviors. We review the theory of information cascades and social learning. Our goal is to describe in a relatively integrated and accessible way the more important themes, insights and applications of the literature as it has developed over the last thirty years. We also highlight open questions and promising directions for further theoretical and empirical exploration.

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Suggested Citation

Bikhchandani, Sushil and Hirshleifer, David A. and Tamuz, Omer and Welch, Ivo, Information Cascades and Social Learning (June 2021). NBER Working Paper No. w28887, Available at SSRN: https://ssrn.com/abstract=3861416

Sushil Bikhchandani (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

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David A. Hirshleifer

Marshall School of Business, USC ( email )

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Omer Tamuz

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

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Ivo Welch

University of California, Los Angeles (UCLA) ( email )

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HOME PAGE: http://www.ivo-welch.info

National Bureau of Economic Research (NBER)

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